The press is full of nothing except the spread of Coronavirus. Lets’ start with a piece of good news the rate of new cases and deaths have fallen in both China and South Korea. So, protection measures do work and it seems as though countries need at least six weeks to work through the worst of the crisis.
Europe is now experiencing what both China and South Korea have already been through. We are putting regions into quarantine, closing schools and universities and advising people to work from home. The advice, at the minute is inconsistent, but will take on consistency when it becomes more urgent and pressing.
Much of the debate, and quite rightly so, is around the impact on the general population. We should also consider the impact from the business perspective If areas are put into quarantine then employees may not be able to commute to their place of employment. This will have varying impact on businesses depending on their ability to access digital systems. If the population works from home, then some businesses will be deprived of their customers, particularly the leisure and retail sector. Trying to keep things in perspective, business could be most severely impacted over a six-week period. During this time access to cash flow will be critical.
In the UK the majority of sales invoices are issued on 30-day terms. In reality business takes approximately 60 days to pay sales invoices. That is under normal trading conditions. Consider now employees working for home for extended periods. There will be a considerable amount of confusion and business interruption. Where payments have been routinely made within 60 days, this could quite easily extend into 120 days. How many businesses have sufficient cash resources to continue to meet operating casts for four to six months?
Business in general has been tough over the past few years. Markets are competitive and customers are always on the look out for value for money. Cash has not been plentiful. Nonetheless business has responded by cutting costs and introducing efficiency measures. A four to six-month period without access to cash could be a sever body blow. So, as well as sourcing Coronavirus testing kits and ensuring that supermarkets have sufficient supplies on the shelves, government needs to think about the measures it can introduce to support smaller businesses through the next four to six months. An immediate start could be a deferral of payment of VAT, PAYE and NI. This will not be sufficient to cover the period in question but may buy enough time until the government can work out some from of grant support. However, all of these actions will take time. Extending bank facilities underwritten by the Bank of England maybe another consideration. Across Europe governments will have to consider their options. The German economy, for example, is strongly supported by SMEs. So, the German government too will need to consider how to support these essential businesses.
So whilst consideration for our population is very important, consideration for our SMEs is equally important if our economy is to continue to perform well the other side of the crisis.